Public Administration (SYBA-PAPER-III) LPG and Indian Administrative System

LPG and Indian Administrative System

Under the forces of globalization-liberalization recent decades have seen a shift towards reduced role for the state and government in all countries. India could have not remained unaffected by these global trends. The nineties saw the replacement of ‘License, Quota, Permit (LPG) Raj’ by Liberalization, Privatization and Globalization (LPG) regime.

One natural and inevitable consequence of planned development in India has been the phenomenal growth and extension of public undertakings in varies fields of developmental activities. There was contextual change from Imperial governance to Democratic governance and from Night watchman state to the Welfare state. State assumed varied responsibilities to respond to increased expectations of people from independent state and our owned government and to achieve goals of socio-economic justice along with political democracy.

The Public enterprises were assigned a pre-eminent role in the economic development. The scheme of Industrial Policy Resolution of 1956, talks of ‘commanding heights of the economy’ through public sector enterprises. The economic development and rate of growth were accelerated and sound economic infrastructure for industrialization was established. The monopolies and concentration of wealth in the hands of few could not be prevented but self-reliance in strategic fields to reduce dependence on foreign technology was attained. Balance regional development was achieved and regional disparities were reduced. Employment opportunities in different sectors improved standard of living of people and reduced the pressure on balance of payment through export promotion and import reduction.

Notwithstanding these achievements, the public enterprises have met with enormous failures, especially in financial performance and managerial efficiency. Of the total 240 central enterprises, about 140 were making profits and 100 were incurring losses in 1990. Due to their inefficiency desired results were not achieved.

Impact of LPG:

To improve the overall performance of the Indian Economy, the Central Government announced in 1991 the New Economic Policy. It came to be known as the ‘New Economic Policy’ as it made a ‘radical’ departure from Nehruvian Economic Philosophy contained in the 1956 policy. In essence, it heralded the era of liberalization which led to privatization and globalization.

Liberalization means free-market economy. It marks a change from a restrictionist regime to a free regime. It implies reducing, relaxing and dismantling of government’s controls and regulation in economic activities.

These measures include: delicensing of a good number of industries, raising of licensing limits, relaxations under the MRTP Act, broad banding, relaxations under the FERA (FEMA) regulations, legislation of additional capacities, relaxations in export-import policy and so forth.

Thus the private sector is permitted to function freely in respect of investment, production and products.

Privatization means- 1. Denationalization, i.e. changing the ownership of public enterprises fully or partially to the private parties, 2. Deregulation i.e. allowing the entry of private sector into areas hitherto exclusively reserved for the public sector and 3. Operating contract, i.e. entrusting the management and control of public enterprises to the private parties on agreed remuneration.

Globalisation means progressive integration of Economies throughout the world and treating the whole world as one global market by removing the restrictions on foreign trade. This implies opening up the Indian economy to foreign direct investment. It removes constraints to the entry of Multi National Companies (MNC’s) in India. Thus, Indian Economy is made part and parcel of the world economy.

The various reasons for this change in the Governments policy towards public sector are as follows:

·         The dismal financial performance of the public sector.

·         Low returns against heavy investments in Public enterprises.

·         Government’s inability to provide budgetary support to sick enterprises.

·         The need to create competition for the public enterprises so that they are forced to earn profits through improved efficiency.

·         The global trend towards liberalization, privatization and gobalisation invited the private sector to come forward to invest in infrastructure areas.

·         External factors influencing the government like advanced countries, MNC’s, World Bank, IMF and so on.

The New Industrial Policy of 1991 contained the following provisions with regard to the public sector:

·         The Government decided to confine public sector investments to strategic, hi-tech and essential infrastructure areas.

·         Some of the areas reserved public sectors will be opened up to the private sector selectively and public sector was allowed to enter in areas not reserved for it.

·         Chronically sick public enterprises will be referred to the Board for Industrial and Financial Reconstruction (BIFR) for formulation of revival and rehabilitation schemes. Etc…

The liberal Economy Reforms:                                                                                              

As a follow up of this new policy and a series of macroeconomic policy reforms leading to the liberalization of the Indian Economy, the government had taken various measures to reform the public enterprises:

1.      The Policy of Dereservations

2.      Closer or Revival of Sick Units

3.      Golden Handshakes

4.      The Policy of Disinvestments

5.      Choosing and strengthening  the Navaratnas

6.      Support to Miniratnas

Signing of MoU

a)      Dereservations:

In 1991, the number of industries reserved for the public sector was reduced from 17 to 8. In 1993, two more items were deleted from the reserved list. Again in 1998 another two items were dereserved. Recently, in May 2001, the government opened up one more area to the private sector participation. Thus, today only 3 areas stand reserved viz., 1) atomic energy 2) minerals specified in the schedule to the atomic energy (control of production and use) order 1953, and 3) rail transport.

            Moreover, some of the dereserved areas are opened not only to domestic private enterprises but also to foreign private enterprises.

b)     Sick Units:

In 1991, the Sick Industrial Companies Act (SICA, 1985) was amended to enable the sick public enterprises to be referred to the Board for Industrial and Financial Reconstruction (BIFR, 1987) for revival or closure. Till the end of 2000, 74sick units were registered with BIFR. Revival packages were approved for more than 25 sick units, while winding up was recommended in 13 cases.

c)      Golden Hand-Shake:

In 1988, government initiated the Voluntary retirement Scheme (VRS) to help the Public Enterprises to shed Excess manpower. This scheme came to be popularly known as “Golden Hand-Shake” Policy as the workers get a handsome amount from the enterprises at the time of dissociation. As a result, the number of employees, came down from 22 lakhs in 1991 to 1.87 million in 2003.

d)     Disinvestment:

In 1991-92, the disinvestment programme was started with the main objective of raising non-inflationary kind of finance for the government budget. Disinvestment is a process whereby the government withdraws a portion of the total of its equity in a public enterprise. Till 1999, the government raised Rs. 18,638 cores from various rounds of disinvestment.

e)      Navratnas:

In 1997, the Government identifies nine leading, well-performing and high-profit making public enterprises, as ‘Navratnas’ (Nine Precious Jewels.) Later, in the same year, two more were added to the list. They were granted substantial enhanced autonomy and operational freedom in different fields (financial, commercial, managerial and organizational) to facilitate their becoming global players.

Navratnas are- SAIL, BHEL, ONGC, IOC, HPCL, BPCL, GAIL, NTPC, VSNL, MTNL, IPCL.

Two of these, namely, VSNL and IPCL, have been privatized and presently there are only 9 Navratna public enterprises.

f)       Miniratnas:

In 1997, the Government identifies another 97 profit making public enterprises as the ‘Miniratnas’ (Small Precious Jewels) and granted them financial, managerial and operational autonomy

g)      Memorandum of Understanding

It is an agreement between government (ministry) and the public enterprises management to grant autonomy to the later, that is, to reduce day-to-day interference of the ministry in the management of public enterprises. It defines obligations of both the parties for improving performance of public enterprises.

The system of MoU    was introduced IN 1987-88. It has grown a steady rate from 4 MoUs in 1987-88 to 97 MoUs in 2002-2003. Out of these 97 enterprises, 45 were excellent, 19 very good, 14 good, 17 fair, and only 2 were rated as poor.

Globalization of Indian Markets

Similarly, globalization was conceived to integrate the Indian economy with the world markets. Its parameters included reduction of trade barriers for a free-flow of goods and services across national frontiers and the creation of conditions conductive.

The government has attempted to dismantle quantitative restriction on imports and exports to adjust exchange rate to remove over-valuation of currency. The government took measures to encourage foreign investment.

Effects of LPG on Public Administration:

·         Element of Competition:

·         Bureaucratic model- rule bound, conservative, slow, unresponsive, inefficient, ineffective and high cost- Challenged.

·         Reforms in terms of NPM, E- governance, etc.

·         Process of LPG proved useful.

·         Liberalization encourages competition among the players by ending monopoly of Government owned companies.

·         Modernization and Technological Preparedness:

·         Free flow of technology and management techniques led to modernization and increased use o technology in Pub. Administration.

·         Attitudinal changes:

·         Principle of effectiveness added to traditional principles of Pub administration- efficiency and economy..

·         Competition allowed consumers to make choice..

·         Attitudinal change- pub administration became people oriented- improved quality service- attractive products.

·         Increasing importance of specialists:

·         In policy making to achieve efficiency and effectiveness.

·         Bureaucracy became result oriented due to competition with private players.

·         Decentralization:

·         Privatisation and deregulation shift responsibility for functions from the public to private sector and is another type of Decentralisation

·         Professional Competence:

·         Reorientation of attitude- new work ethics-acceptance of NPM,

·         Introduction of private management principles in Public Administration,

·         Entry of MNC’s

·         Free play of labour and manpower

Conclusion:

            Under the waves of LPG, 1990s witnessed major shift in policy led to deregulation and disinvestment and opening of the activities reserved for the public sector to private players. Role of Public sector has been de-emphasized. Public Sector is also withdrawing its investment from Welfare activities like health, education, housing etc. New model of Public- Private- Partnership coming forth to fill the vacuum created by withdrawal by Government from many sectors. State formerly interventionist, producer, regulator and seller now called upon to be a facilitator, promoter, and partner.

            Due to these changes size of Public Administration is also shrinking. Nehruvian Model based on Democratic Socialism is replaced by ‘Free Market Economy’.

Reference:

Sharma P.D., Sharma B.M, Indian Administration- Retrospect and Prospect, 2009

Laxmikanth, Public Administration.